Thompson Rivers University

Want to find out who should supervise commercial banks for the banking sector stability?

September 27, 2013

Professor Khan and Dewan empirically examine by whom the commercial banks should be supervised for the stability of a banking sector. With a cross-sectional dataset from 78 countries and using a logit estimation model, they find that the probability of the instability of a country’s banking sector reduces if the commercial banks are supervised exclusively by the country’s central bank. This probability is even higher if the central bank can conduct its supervision in a less-corrupt institutional environment. Finally, by carrying out some counter-factual thought experiments, they confirm that banking supervision causes banking sector instability, not vice versa. Professor Khan and Dewan published their finding in the journal Applied Economics Letters

Khan, A. & Dewan, H. (2013). “Who should supervise commercial banks for the banking sector stability?” Applied Economics Letters, 20 (17): 1531-1537, Taylor & Francis.

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